Ukraine Weighs Down On The World As Bond Yields Drop
The Ukrainian-Russian conflict is top-of-mind for global markets. Volatility has soared with the VIX index, a.k.a. the fear gauge rising above 30. This number is important because it represents a more fearful market, as investor sentiment has been trashed by the recent wild market moves. While contrarians would argue to buy when fear is high, this time may be different. It is hard to handicap Mr. Putin. For the moment, neither sanctions nor the threat of being banned from Western nations’ economies has deterred his desires over Ukraine.
The February Jobs report was solid. Unemployment fell to 3.80% and wage inflation was moderated, which is helpful for bond yields. While oil prices have broken through 100 per barrel and other food sources and commodities linked to Ukraine have also risen greatly, the reason can be explained away due to the Ukrainian conflict. Wage inflation is the most sticky type of inflation. As those numbers came in below expectation, the Fed has more time to raise rates in the coming months.
These are truly scary times. It feels as if the world has become much more dangerous in just a matter of days. While good for U.S. bonds and to a lesser extent U.S. real estate and U.S. equities, should this conflict drag on, markets may experience continued draw-downs and in effect shake consumer confidence. Real estate has tangible qualities that make it attractive in this type of environment and may hold up better than other types of assets. However, the odds are increasing that a recession may be on the way, so caution is warranted. Also, lenders are slowly lowering rates even though our Government debt has dropped precipitously. The overall market remains near impossible to handicap.
